BERLIN (MNI) – The European Central Bank in its annual report
released Monday reiterated the importance of reducing public deficits in
the Eurozone.
Deficits and total debt levels have increased significantly during
the economic and financial crisis, the report observed. It pointed out
that part of this increase is due to the automatic cyclical response of
government revenue and spending to macroeconomic developments and to
other transitory factors, such as temporary fiscal stimulus or
government transfers to shore up the banking sector.
“However, the crisis has led to a substantial downward revision of
most estimates of potential output, along with some losses in tax
revenues…which may be viewed as permanent,” the ECB argued.
“For this reason, the bulk of the government deficits built up
during the crisis should be considered as structural,” it argued. “This
implies that substantial fiscal consolidation in the coming years is
needed to put public finances on a sustainable footing.”
The ECB again criticized what it views as insufficient fiscal
reform efforts in the European Union.
“In the field of fiscal surveillance, the room for discretion left
to the [Ecofin] Council when assessing the existence of an excessive
deficit or when assessing the debt criterion should be reduced and
consideration should be given to reversing the changes to the Stability
and Growth Pact made in 2005, which allowed Member States greater leeway
under the Pact,” the ECB said.
Moreover, requirements for achieving a country’s medium-term
budgetary objective should be ambitious, in particular in Eurozone
states with high government debt, the central bank said.
“To facilitate compliance with their obligations under the Pact,
euro area countries should swiftly implement strong national budgetary
frameworks and improve the quality of their government statistics,” it
urged.
–Berlin bureau: +49-30-22 62 05 80; email: twidder@marketnews.com
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